Ahead of the Yellen Speech

March 3, 2017

A slew of Fed officials have put a March interest rate hike firmly in play. Later today, both Vice Chair Fisher and Chair Yellen speak. There have been times before when the rest of the FOMC rhetorically seemed ahead of Yellen in itching to raise rates, but that seems unlikely in this instance. In fact, domestic and global data if anything suggest that the upward path of rates may prove steeper than implied previously, but the end-point of the normalization doesn’t seem to have drifted higher.

The dollar shows losses since Thursday’s close of 2.1% vis-a-vis the peso, 0.4% against the euro and 0.2% relative to the Swiss franc but has also advanced 0.8% against the kiwi and 0.2% versus the yuan, Australian dollar, loonie and sterling. Dollar/yen is unchanged.

Sovereign debt yields continue to climb with 10-year assets up of 5 bps in Greece and Switzerland, 4 bps in Germany, 3 bps in the U.S. and France, 2 bp in Canada and 1 basis point in Japan.

U.S. and British stocks are down 0.2%, and the German and French markets are down about 0.5%. Share prices lost 0.8% in Australia, 0.7% in Hong Kong, 0.5% in Japan and around 0.2% in China.

Oil rebounded 1.0%, but gold firmed 0.5%.

Japanese core CPI inflation, 0.1%, returned to the black for the first time since December 2015, and the jobless rate edged 0.1 percentage point lower to 3.0% in January. Real household spending rose 0.5% on month but recorded an on-year drop of 1.2% in January.

Euroland retail sales posted a third straight on-month decline in January, this time of 0.1%, and the 12-month rate of increase held steady at 1.2%.

German retail sales volume unexpectedly slumped 0.8% in January and was 1.1% below the fourth quarter average. Sales nonetheless exceeded their year-earlier level by 2.3%.

Italian GDP last quarter went up 0.2% versus 3Q and 1.0% compared to a year earlier. Czech GDP advanced 0.4% on quarter and 1.9% on year.

South Korean CPI inflation dipped 0.1 percentage point to 1.9% in January, while core held at 1.5%.

In the year to February, Turkey’s CPI and PPI posted double-digit advances of 10.1% and 15.4%.

Today’s purchasing manager survey releases produced the following findings:

Euroland’s services PMI of 55.5 and composite PMI of 56.0 for February showed the fastest activity in 69 and 70 months, respectively. The composite PMIs for France, Germany, Spain and Italy were at 69-, 34-, 18- and 14-month highs, while Ireland’s slid to a 3-month low yet at 57.8 reflected very robust growth.

The U.S. non-manufacturing PMI in February advanced by 1.1 points to a reading of 57.6, powered by gains of 3.3 points to 63.6 in business activity and 2.6% to 61.2 in new orders.

Standard Bank’s private South African PMI printed above 50 for a sixth straight time but only barely with a 4-month low of 50.5.

The British services PMI undershot expectations, dropping another 1.2 points to 53.3 in February, a 5-month low and down from a 17-month peak of 56.2 in December. The U.K. composite PMI of 55.5 represents a 2-month low.

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